OPINION: Economics Weigh Heavily on Promise of 5G

By Ernest Worthman, AWT Exec. Editor, IEEE Sr. Member

March 5, 2019

The weeklong high of Spain, and MWC19 Barcelona, is now over and many of us are back at our desks. Nursing a tekkie hangover, we are staring down a stack of business cards, receipts, trinkets, crumpled napkins (or smartphones if your young and with it) with drawing, and writings that resemble some sort of hieroglyphics. The post-show blues are here. We are, now, under the gun to deliver on the hype that MWC made so visible.

Granted, MWC presented us with many “wow” and “gee-whiz” moments. A chance to see what the industry is doing at the edge. Some of the stuff was, indeed, impressive. However, in the end, little of it will appear before next year, or beyond.

It is wonderful to see early working models of network slicing, carrier aggregation, SDN, and NFV using mmWave, edge networks, V(X), and more. However, without some idea of how and when we are going to see this as the default platform, it just gets shelved along with the rest of the projects and technologies that will, eventually, make it out of the closet.

The 5G hype that led up to the show was overwhelming. Even the smallest news on 5G was trumpeted as being the next best thing. Now that the show is over, a contemporary said it rather well, “is that it?” Well, yes it is. Having a bucket full of next-generation technology is fine. However, without a platform to apply it to, it is just so much wishful thinking.

Of course, the 5G ship is getting up a head of steam. The problem is, however, there is no visible port for it to dock, yet. Announcements for 5G deployments are abundant but, they are still extremely limited when one looks at the wireless landscape, both globally and locally. Therefore, the “waiting to exhale” moment has not yet happened. This was, directly, due to the long and arduous overhype cycle that 5G has fallen victim to. There have been all kinds of post-mortems about the hype, yet it continues.

Now we are in early 2019. The industry risks getting a black eye if we do not, either, cut back on the hype and focus on reality or, by some miracle, everybody starts working together to “git ‘er done.” I do not see either of those on the horizon so 2019’s exit could be interesting.

One of the panels brought out a salient point that holds the 5G future in its hands – cost. At this stage of the game, it is all about expenses. There is no RoI. Now, one can argue that capital outlay is a normal cost of doing business.

Expansion, upgrades, repairs, etc. are always part of the business capital model. However, in most cases, the outlay is to improve revenue and is, generally, done in a logical, step by step process. 5G is different. It is a complete rework; not a patch job. Therefore, there is tremendous expenditure before a single dollar is turned. Either the existing RoI model supports that, or the industry builds it on the come, with whatever monies it can throw at it. Thus far, neither model has seen widespread excitement. Spending has been tight. In addition, with some of the issues surrounding 5G, from world technical and economic troubles, to geopolitical issues, to a lack of vision of how this is all going to play out. The hype of 5G is coming into serious question.

One bit of data that struck me, poignantly, was a panel of operator CEOs who, candidly, confessed they are apprehensive about the capital outlay necessary to build 5G networks. This is one of the few pragmatic lessons taken away from MWC.

There are a couple of major concerns these operators have. One being the global slowdown in network revenue. According to Telstra Chief Andrew Penn, operator return on capital investments is hanging around in the mid-single digits, and it continues to decline. The end user is just not as hot on new, expensive phones as the industry anticipated. 4G is doing the job and smartphones no longer have a “ooohhh” factor. Users have gotten used to, and are satisfied with how well current phones function. They are using them, more and more, as tools, not gadgets. Therefore, unless there are “eye-poppers” (such as the foldable phones) the consumer is choosing to pass on $2000 phones. Perhaps these flexible screens and foldables will change that. We will have to wait and see.

Another perspective from Liberty Global CEO Mike Fries points out that most European operators are “nervous” about the 5G expense. They do not have a grip on the business models.

A second concern operators face is not remaining a dumb pipe. That has been an issue for at least a couple of years, already. There has been a great deal of posturing among operators and content providers to find some mutually beneficial model where everybody makes money. So far, lots of action but not much to show for it.

As well, and I have discussed this often, 4G is doing the job in many deployments. Moreover, 4G hardly has one foot in the grave. Some experts predict that 4G, and all of its advancements, as well as being able to benefit from “5G” technologies (carrier aggregation, network slicking, SDN, etc.) has years left before it maxes out. Those are the same tricks AT&T was using to try to fool us into thinking 5G was here. Obviously, there is still a lot of interest in keeping the 4G infrastructure generating RoI before jumping headlong into 5G.

Enhanced mobile broadband (eMBB) is not the only segment of 5G. There is smart “X”, transportation, medical, wearables, various flavors of machine communications, high-bandwidth multimedia, the Internet of Everything/Everyone (IoX), and many more. However, these markets will be much slower to evolve than the end user smartphone market.

So, as MWC fades in the rear-view mirror, hopefully, there will be a bit of a breather before the hype picks back up. Then, in a few months, comes MWC Los Angeles (or whatever they want to call it). More warm beer, mediocre, expensive food, and gallons of Tarbucks – YAY! I can’t wait!!!